Latest market data

Stock search

A local bank and a high-growth startup don’t seem to have a whole
lot in common, but they do have one similar problem: shareholders
can’t turn their ownership stake into cash easily. On Wall Street, of course,
portions of companies are bought and sold all day long. For
companies not listed on these public exchanges however, buying
and selling shares has been more complicated. And with credit
still hard to come by for many business owners, new ways are
emerging to turn at least part of their companies into cash.

In the private sector -- from high-growth startups to community
banks -- alternative marketplace SecondMarket is making that possible. The
New York-based online marketplace provides a platform for
private companies to sell shares of their businesses.

Initially popular for allowing employees of superstar startups
like Facebook and Pinterest to trade company shares before
going public, SecondMarket has since added a new type of
private company to its roster: community banks.

While looking for other private companies that could use the same
ability to raise cash, SecondMarket zeroed in on the nation’s
network of community banks: 7,500 strong across the nation, 6,000
of which are private, according to SecondMarket spokesperson
Aishwarya Iyer.

SecondMarket launched a pilot program in February allowing
community bank investors to buy and sell their shares online. The
pilot is focused on community banks in four states: New York, New
Jersey, Texas and Pennsylvania. By summer, SecondMarket will
decide whether to continue with the program full time.

To be sure, there are reasons to be cautious of selling shares of
your company or bank on a platform like SecondMarket. Most
notably, you lose some of the benefits of being a private
company, like the privacy. The value of your shares on SecondMarket rise
and fall in response to public sentiment, just as they do on
Wall Street, and that trajectory is available for anyone to
see on SecondMarket.

Anyone can sign up for SecondMarket (online registration is free)
and become a “watcher” of a particular bank or company to receive
company updates, such as funding news or management shake-ups.
However, only institutional investors or an individual who is an
accredited investor can purchase shares.

One of the attractions for investors is the ability to invest in
“hyper-local growth,” says Iyer. “Investors from Texas want to
invest in a Texas bank.” And for the shareholder, the attraction
is being able to convert their investment into cash, says James
Arnold, the executive vice president of Lubbock National Bank,
headquartered in Lubbock, Texas, with total assets of about $750
million. Lubbock National Bank has fewer than 200 shareholders
and some of them are nearing retirement and want to cash out. Now
they will have that opportunity.

“It is safe to say that all across the country, those who own
community bank stock, the profile is probably older than
younger,” says Arnold. Traditionally, buying a share of a
community bank has been perceived as a long-term investment. But,
being on SecondMarket will allow Lubbock National Bank to appeal
to younger investors who may not be willing to lock up their
money for so long, says Arnold.

Readers, how would it change your business to be able
to buy and sell portions of your company before it goes
public?